1. Field of the Invention
The instant invention relates to the field of credit and financing instruments, and more particularly to the field of determining company default probabilities using observable market information.
2. Description of the Related Art
In the credit market, there is considerable concern with and interest in understanding and predicting the risk for a given credit transaction. One of the risks is a default by the borrower, and subsequent loss of all or a part of the credit “investment”. When extending credit, there is also an interest in comparing the relative risk for different borrowers, where one of the risks includes a risk of future default.
Understanding and providing a measure for the risk of a company's default has been attempted in a number of different ways. Most of those techniques use very complicated market factors, relationships and subjective judgement about the borrowers and market trends. Few of the known systems use a straight-forward, understandable, repeatable and dependable process.
What is needed is a system and method to provide a prediction or probability of a company's default, which uses primarily observable market factors and historic trends.